Like many cities around the world, Denver gets its drinking water from rivers and reservoirs, which in turn get their water from forests. Many of those forests, however, are in trouble – thanks to funding cuts, climate change, and a horde of opportunistic beetles. That puts the city’s water supply at risk as well, so Denver teamed up with the US Forest Service to funnel money it collects from water fees into forest restoration.

Like many cities around the world, Denver gets its drinking water from rivers and reservoirs, which in turn get their water from forests. Many of those forests, however, are in trouble – thanks to funding cuts, climate change, and a horde of opportunistic beetles. That puts the city’s water supply at risk as well, so Denver teamed up with the US Forest Service to funnel money it collects from water fees into forest restoration. And it’s not the only city to do so.

7 September 2010 | Denver Water delivers clean drinking water to more than 1.3 million people spread across more than 335 square miles, and most of that water comes from rivers and reservoirs that capture run-off from forest-covered hills in clearly-delineated watersheds. The forests both protect the steep slopes from erosion and regulate the flows of water by mopping it up and then releasing it slowly over time.

And therein lies the problem: climate change has extended summers in Colorado just enough to give the northern pine beetle the comfort it needs to multiply like never before. The bug has taken full advantage – devouring bark at a rate ten times higher than ever recorded, killing trees and leaving them scattered like kindling for wildfires.

And those fires now take hold with increasing frequency, reducing the forest to lumps of silt and sludge. Lush slopes degenerate into unstable masses of goo. The water upon which the city depends becomes muddy and irregular, which makes it more difficult – and expensive – to assure people they can turn on their faucets and trust the drinking water that comes out.

Enter the US Forest Service (USFS), which is charged, in part, with ensuring clean headwaters by maintaining healthy forests.

Both the USFS and Denver Water are struggling to meet their budgets in the face of these challenges, so in August the Forest Service’s Rocky Mountain office cut a $33 million deal with the Denver utility to proactively manage 38,000 critical acres in five key watersheds – if Denver Water comes up with half the money.

Denver Water took the offer, despite – or perhaps because of – it’s own struggles with a slew of disaster-related expenses, including a $40 million bill to remove silt and mud from a reservoir in just one wildfire-damaged watershed.

Convinced that spending money now will save money in the long run, the utility agreed to finance the removal of dead trees and the extermination of beetles in sensitive areas with steep slopes and other key features by implementing water fees that will amount to about $27 dollars per household over the next five years.

Payments for Watershed Services

This type of targeted spending is typical of Payment for Ecosystem Services (PES) schemes, which aim to finance the preservation of nature by recognizing the economic value of nature’s services, and then convincing beneficiaries of those services to pay those who deliver them. Such schemes offer more transparency and accountability than do normal governmental structures – a key selling point in any economic climate.

In this case, the ecosystems are the watersheds being protected, and the ecosystem service is the provision of water.

Opportunity for Rural Poor

A recent study published by Ecosystem Marketplace found that cash-strapped governments around the world are using similar schemes, dubbed “Payments for Watershed Services”, to balance economic and ecological challenges. The report, State of Watershed Payments: An Emerging Marketplace, documents nearly 300 programs involving nearly $50 billion in transactions over twenty years in countries as diverse as China, the United States, Brazil and Australia – with $10 billion of that coming in 2008 alone and 2009 not yet fully accounted for.

The city of New York runs one of the best-knows PWS schemes, which involves payments to rural landowners in the Catskill Mountains. This scheme has saved the city an estimated $10 billion since its inception in the 1990s.

Water utilities in developing-world cities like Dar es Salaam, Tanzania, are investigating the use of PWS schemes to preserve their water flow, while Latin American cities like Heredia in Costa Rica and Saltillo in Mexico have already implemented successful schemes that pay small-scale farmers to act as guardians of the watershed. The result is clean, reliable water at a fraction of what it would cost to develop modern filtration facilities.

Such schemes are now on the agenda at World Water Week, in Stockholm, Sweden, which runs through Saturday and is focusing this year on water quality.

Spreading the Word

For PWS schemes to work, buyers have to understand what they’re paying for, and sellers have to understand what they’re delivering. That’s not always easy when the area being protected – whether a forest or a wetland – is hundreds of miles away from city receiving the water.

“The concept of a ‘protection forest’ is nothing new, really,” says University of Massachusetts Professor Paul Barten. “The first written record of a community establishing something like this dates from 1342 in Switzerland, but back then the source of the water was closer to the users, so you didn’t need these kind of financing schemes.”

Both the Mexican and Costa Rican schemes employed clever marketing schemes to raise awareness, and the Denver scheme is no different.

“We came up with the name to make the connection,”says Barten. “We found that the larger the municipality, the more distant the supply of water – and the greater the tendency for it to remain out of sight and out of mind.”

And that lack of awareness cannot continue – especially in light of current demographics.

“We have twice as much forest in the Northeast as we did when the Forest Service was founded,” he says. “But we have three times as many people – and they consume ten times as much water.”